'The 21st Century Store' is coming – but who will survive

Saks has offered 70-percent reductions in luxury merchandise. Amazon’s new electronic reading device, Kindle, may cause disruptions in book publishing.

Eugene Fram

Saks has offered 70-percent reductions in luxury merchandise. Amazon’s new electronic reading device, Kindle, may cause disruptions in book publishing.

The downward trend has arrived, with retail bankruptcies, employee layoffs and consolidations escalating daily – affecting manufacturing, service and wholesale firms. An intriguing picture emerges of what might develop early in the current century, “21st Century Store.”

Its development will come from the “demise” of the current structure, the development of new electronic retail technologies and the need for infusions of huge amounts of risk-related venture capital.

The current retail upheavals, which could be called “The Battle of the Retail Giants,” began in 1990 as large, well-financed and well-managed retail organizations fought for market share. It resulted in the merger of acquisition of some, closure of others and many Chapter 11 bankruptcies.

•At the national level, Federated Department Stores, now Macy’s, acquired May Company stores.

•At the regional level, Home Depot and Lowe’s forced Wegmans to close its subsidiary 17 store home improvement chain, Chase Pitkin.

•Best Buy is reported to be seeking to acquire some of the closed Circuit City locations.

•Declines in consumer spending may result in a few large chains like Wal-Mart, Target, Barnes & Noble and Costco.

“The Battle of the Retail Giants” is ending, but the number of convulsive skirmishes to come – bankruptcies, mergers and acquisitions activities – will continue at least through 2009. Then there will be a stable retail period when only the surviving giants will prosper, along with some smaller retail chains that offer unique merchandise or friendly consumer services. Reduced numbers of retail locations will be the norm, as consumers become less focused on material acquisitions.

At some point, the “Wheel of Retailing” will then be introduced, showing the way to a new, innovative form of retailing, “The 21st Century Store.” The wheel, a strategic model formulated in 1957, traces retailing history back to the 1800s and concludes that every new form of retailing begins with discount strategies of low prices and limited services.

Department stores in the latter part of the 1800s enticed consumer to shop for low prices only, supported by limited services. They then added more services, including delivery, and evolved into modern department stores we know today.

Discount stores in the late 1940s offered low prices and limited services to compete with the department stores. Next came category-killer stores and big box operations, as discount retail became more widely accepted.

Technology will help lead the way to the next innovative form of retail stores.

• Department stores can develop electronic support that allows customers to virtually see themselves in a garment. The garment can be delivered at a discounted price from a central warehouse or at a regular price if bought directly from the store.

Business executives should look to technology to help retailers to make the next major moves, as the Wheel of Retailing revolves again in the 21st century.

The installation of the new technologies will undoubtedly be costly and risky. Many installations will require huge capital costs, which will need venture capital support because of the developmental risks involved, and the poor current performance of much of the retail industry.

The 21st Century Store will appear along the lines suggested by the Wheel of Retailing strategy when venture capitalists once again substantially support retail change.

The questions remain how the basic human need for touching, feeling and smelling the merchandise can be factored into the new model? Or have we reached the point of human development where these needs are significantly declining?

Eugene Fram is an emeritus professor of marketing at the Saunders College of Business at Rochester Institute of Technology.

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